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It Figures: Auditing Your Club

An Annual Check to Give You Peace of Mind

Q.  I was reading your article “Amending a Partnership Agreement” (March 2008 issue), which we have done. However, there is another issue that we are trying to address and need some guidance. What is the procedure for investment clubs to be audited? How often should a club be audited? Do you have any recommendations of auditors? We are really trying to get on track, as we haven’t been audited since our founding a few years ago.

J. Otis Harris, Jr.
Shiloh Blessed 7 Investment Club
Washington, D.C.

A.  A full audit of your club’s records should be performed annually. This is usually best done after completing your year-end tasks and before submitting your tax forms to the Internal Revenue Service. Additionally, all members should check the member status report monthly to ensure that their deposits have been recorded accurately. Audits are important; they can catch not only mathematical errors, but also misuse of funds by the club’s treasurer.
BetterInvesting doesn’t provide auditor recommendations, but there’s no need to hire a professional auditor, which can cost around $100 to $400 an hour. Audits are fairly easy to perform and don’t take much time.
To perform an audit, you’ll first need to appoint an audit committee. This committee should consist of at least two club members other than the treasurer. Committee members also shouldn’t be related to the treasurer (this may be difficult in family clubs). The treasurer will need to provide the audit committee members with the following items:

•    original brokerage and bank statements
•    original brokerage and bank deposit slips
•    original receipts
•    canceled checks
•    the transaction ledger
•    income and expense history reports
•    member contributions and withdrawals reports
The last three items can be viewed online if your club uses an online accounting service, such as Bivio.
In the audit you review every transaction by comparing the statements from banks and brokerages with those of the club. All the withdrawals, deposits, member payments, number of shares owned of each security and beginning and ending balances should be compared to verify that all are correct. If you find any discrepancies, alert the treasurer. The treasurer will need to explain any discrepancies not caused by rounding errors.
If you’re still having difficulty after trying to audit your club’s books, contact a BetterInvesting chapter. Chapter volunteers can help you, usually at no charge to association members. If your club still isn’t satisfied, you can find an auditor with the Certified Internal Auditor (CIA) designation at the Institute of Internal Auditors.
Because your club hasn’t performed an audit for more than a year, errors may be caught from a previous tax year. If this occurs, your club may have to file amended statements to your members and the IRS.
Take heart: Your club should be able to complete its audit in about two hours for each year. And you’ll have peace of mind knowing your finances are in order.

Club Celebrations

The Dividenders Investment Club of Columbus, Ohio, was started in 1958 by good friends and neighbors with young families and mutual interests. The club recently celebrated its 50th anniversary with a two-day party at the Cherry Valley Inn in Granville, Ohio.
Members are, first row, from left: Patsy Crowell, Laurel Fosness, Eleanor Hyatt, Marcia Herreld, Richard Quinby. Second row: John Fosness, Ohmer Crowell, Alexandra Falenski, Richard Rorapaugh, Anne Rorapaugh, Chuck Hyatt, Patricia Quinby. Not present: Lois Watkins, Marjorie Kropp.

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